Academic literature on the topic 'Frequency containment reserve – normal'

The increase of distributed energy resources in the smart grid calls for new ways to profitably exploit these resources, which can participate in day-ahead ancillary energy markets by providing flexibility. Higher profits are available for resource owners that are able to anticipate price peaks and hours of low prices or zero prices, as well as to control the resource in such a way that exploits the price fluctuations. Thus, this study presents a solution in which artificial neural networks are exploited to predict the day-ahead ancillary energy market prices. The study employs the frequency containment reserve for the normal operations market as a case study and presents the methodology utilized for the prediction of the case study ancillary market prices. The relevant data sources for predicting the market prices are identified, then the frequency containment reserve market prices are analyzed and compared with the spot market prices. In addition, the methodology describes the choices behind the definition of the model validation method and the performance evaluation coefficient utilized in the study. Moreover, the empirical processes for designing an artificial neural network model are presented. The performance of the artificial neural network model is evaluated in detail by means of several experiments, showing robustness and adaptiveness to the fast-changing price behaviors. Finally, the developed artificial neural network model is shown to have better performance than two state of the art models, support vector regression and ARIMA, respectively.

The new Li-ion battery systems used in electric vehicles have an average capacity of 50 kWh and are expected to be discarded when they reach approximately 80% of their initial capacity, because they are considered to no longer be sufficient for traction purposes. Based on the official national future development scenarios and subsequent mathematical modeling of the number of electric vehicles (EVs), up to 400 GWh of storage capacity in discharged batteries will be available on the EU market by 2035. Therefore, since the batteries still have a considerable capacity after the end of their first life, they could be used in many stationary applications during their second life, such as support for renewables, flexibility, energy arbitrage, peak shaving, etc. Due to the high output power achieved in a short time, one of the most promising applications of these batteries are ancillary services. The study assesses the economic efficiency of the used batteries and presents several main scenarios depending on the likely future development of the interconnected EU regulatory energy market. The final results indicate that the best results of second-life batteries utilization lie in the provision of Frequency Containment Reserve Service, both from a technical and economic point of view. The internal rate of return fluctuates from 8% to 21% in the realistic scenario, and it supports the idea that such systems might be able to be in operation without any direct financial subsidies.

This paper focuses on the sizing of a battery energy storage system providing frequency containment reserves in a power system with a large wind power penetration level. A three-stage sizing methodology including the different aspect of battery energy storage system performance is proposed. The first stage includes time-domain simulations, investigating battery energy storage system dynamic response and its capability of providing frequency reserves. The second stage involves lifetime investigation. An economic assessment of the battery unit is carried out by performing the last stage. The main outcome of the proposed methodology is to choose the suitable battery energy storage system size for providing frequency containment reserve from augmented wind power plants while fulfilling relevant evaluation criteria imposed for each stage.

With the growth in the share of variable renewable energy sources, fluctuations in the power generation caused by these types of power plants can diminish the stability and flexibility of the grid. These two can be enhanced by applying frequency containment using hydropower plants as an operational reserve. The frequency containment in hydropower plants is automatically controlled by speed governors within seconds. Disturbances such as fluctuations in the net head and aging may diminish the performance of the controllers of the speed governors. In this study, model reference adaptive control approaches based on the Massachusetts Institute of Technology (MIT) rule and Lyapunov method were exploited in order to improve the performance of the speed governor for frequency containment control. The active power control with frequency control was enhanced by the aforementioned adaptive control methods. A mathematical model of a hydropower plant with a surge tank and medium penstock was constructed and validated through site measurements of a plant. It was shown that, as they are applicable in real life, both methods perform significantly better compared to conventional proportional-integrator control. Even in first five deviations, the performance of the conventional controller improved by 58.8% using the MIT rule and by 65.9% using the Lyapunov method. When the two adaptive control approaches were compared with each other, the MIT rule outputted better results than the Lyapunov method when the disturbance frequency was higher; however, the latter was more functional for rare disturbances.

The systematic implementation of intermittent energy production sources has made the energy system more volatile and unpredictable than ever before. This development increases the importance of balancing services, in particular the primary control. However, the current research that has been conducted on the primary regulation products is limited. Specifically, the factors that drive the variation in availability and price of the primary control are unknown and the procurement is in some aspects based on perception rather than quantitative analysis. This study has investigated which these factors are and their relative significance on the availability and price of the primary control product called Frequency Containment Reserve for Normal Operation – FCR-N. The study was conducted according to methods with both qualitative and quantitative aspects to cover the complex nature of the problem from different views. The study was done in collaboration with Fortum POT at their office to gain insight and support from a market actor. Given the research questions, the result from this study is threefold. Firstly, the factors that affect the FCR-N availability have been identified and other factors have been categorised as insignificant. Secondly, the factors’ relative significances are stated to show their dependency with the FCR-N product. Lastly, an outlier case study showed how extreme situations changes the conditions for the FCR-N procurement. It has been concluded that the FCR-N price for normal operation on the Nordic electricity market can be generalised successfully through the identified parameters. It is also shown that deviations from normal operations have the possibility to create deviations in the FCR-N availability, indicating that these hours of extreme values need additional analysis in order to fully understand the available capacity. However, the significance of the researched parameters will be an indication in analysis of both the normal case and during deviations as these are the most important measures for the FCR-N availability and price.

Renewable energy resources are projected to claim a larger part of the Swedish power mix in coming years. This could potentially increase frequency fluctuations in the power grid due to the intermittency of renewable power generating resources. These fluctuations can in turn cause issues in the power grid if left unchecked. In order to resolve these issues, countermeasures are employed. One such countermeasure is for private actors to regulate power; in exchange they are financially compensated through reserve markets. The reserve market studied in this thesis is called Frequency Containment Reserve – Normal (FCR-N). Currently hydroelectric power provides almost all regulated power within this market. As the need for power regulation is expected to increase in the coming years, there exists a need to study other technologies capable of power regulation. This thesis focuses on one such technology called, virtual power plants. While virtual power plants are operating in other parts of the world, there were no virtual power plants operating in Sweden. As a result, the nature of an optimized virtual power plant and the economic benefits of optimization had not been previously investigated. To answer such questions, this thesis modelled and optimized the revenue of a virtual power plant. The examined virtual power plant consisted of cooling chillers, lighting, ventilation fans and a battery energy storage system. Where varying their total power demand allowed for them to provide power regulation. With the virtual power plant market in Sweden being in its infancy, this thesis serves as a first look into how an optimized virtual power plant using these components could function. To put the economic results of the optimization into context, a comparative model was constructed. The comparative model was based on a semi-static linear model. This is what the thesis’s industry partner Siemens currently uses. For the simulated scenarios, the optimized model generated at least 85% higher net revenues than the semi-static linear model. The increase in revenue holds potential to increase the uptake of virtual power plants on the Swedish market, thus increasing stability in the power grid and easing the transition to renewable energy.<br>Då förnyelsebara energiresurser antas omfatta en större roll av den svenska elproduktionen inom kommande år, så kan detta leda till att frekvensfluktueringar i elnätet ökar. Detta sker på grund av att den oregelbundna elproduktionen från förnyelsebara energiresurser inte matchas med konsumtion. Om dessa fluktueringar inte hanteras kan det i sin tur leda till skadliga störningar inom elnätet. För att motverka detta och således stabilisera elnätet används diverse lösningar. Ett sätt att åstadkomma ökad stabilisering i elnätet är att låta privata aktörer kraftreglera. De privata aktörerna som står för kraftregleringen gör detta i utbyte mot ekonomisk kompensation, genom att delta i reservmarknader. Den reservmarknad som studerades inom detta examensarbete kallas Frequency Containment Reserve – Normal (FCR-N). I nuläget står vattenkraft för nästan all reglerad kraft inom den här marknaden. Men då behovet av kraftreglering antas öka inom kommande år så behövs nya teknologier studeras som kan bistå med kraftregleringen. Den studerade teknologin inom detta examensarbete var ett virtuellt kraftverk. Då inga virtuella kraftverk var i bruk i Sverige då denna uppsats skrevs fanns det osäkerheter kring hur man optimalt styr ett virtuellt kraftverk och de ekonomiska fördelarna som detta skulle kunna leda till. Detta examensarbete modellerade och optimerade ett virtuellt kraftverk ur ett vinstperspektiv. Det virtuella kraftverket var uppbyggt utav kylmaskiner, ljus, ventilationsfläktar och ett batterisystem. Deras kraftkonsumtion styrdes på ett sådant sätt som lätt de bidra till kraftreglering på reservmarknaden. För att kunna analysera de ekonomiska resultaten från det optimerade virtuella kraftverket, så byggdes en jämförelsemodell. Denna jämförelsemodell är baserad på en semistatisk linjär modell, vilket är det som examensarbetets industripartner Siemens använder. Den ekonomiska jämförelsens resultat påvisade att inkomsten från den optimerade modellen var minst 85% högre än den semistatiskt linjära modellen, inom de studerade scenarierna. Denna inkomstökning skulle potentiellt kunna öka användningen av virtuella kraftverk på den svenska reservmarknaden vilket i sin tur skulle medföra högre stabilitet på elnätet. Genom att öka stabiliteten på elnätet kan således förnyelsebara energiresurser i sin tur lättare implementeras.

Abstract. The world is constantly shifting towards increasing the amount of renewable energy use for electricity generation. Many of the renewable energy sources have an unpredictable nature, which can cause issues in the power system. One of the issues with increased renewable energy penetration is more unstable power system due to constantly fluctuating power generation. For this purpose, energy storage systems with fast ramp up and down times are required to stabilize the power system. This thesis is exploring the possibility to use batteries as a containment reserve in the power system. Only electrical energy storage methods are reviewed in this literature review. One of the aims of this thesis was to compare batteries and pumped hydro storage. Pumped hydro electric facilities are old and proven efficient technologies, but they have a high environmental and land use impact. Majority of the current electric energy storage systems are pumped hydro facilities and they can be used for frequency control by changing the water flow rate. Ramp up time of the most batteries can be measured in milliseconds, which is why they would be ideal for controlling the frequency in the power system. Batteries could be implemented two main ways in the power system. Decentralized way on the load side of the power system or centralized way on the power generation side. The advantages of decentralized battery system are in effectiveness, flexibility and ability to reduce traffic in the electricity grid. However, decentralized battery systems would be more complex and costly. Centralized energy systems on the generation side can utilize wider range of batteries compared to decentralized battery systems. Decentralized battery systems would suit especially for frequency control where as centralized systems would be good for load levelling purposes.Akkujen käyttö sähköverkon taajuusohjaukseen ja häiriöreserviksi. Tiivistelmä. Maailma on siirtymässä jatkuvasti enemmän uusiutuvien energianlähteiden käyttöön sähköntuotannossa. Monet uusiutuvista energianlähteistä ovat luonteeltaan arvaamattomia, mikä voi aiheuttaa ongelmia sähköjärjestelmässä. Yksi ongelmista on epävakaampi sähköjärjestelmä, joka johtuu jatkuvasti vaihtelevasta sähköntuotannosta. Ongelman ratkaisemiseksi tarvitaan sähkönvarastointitekniikoita, joiden energiantuotantoa voidaan lisätä tai vähentää nopeasti sähköjärjestelmän vakauttamiseksi. Tämä opinnäytetyö tutkii mahdollisuutta käyttää akkuja sähköverkon taajuusohjaukseen ja häiriöreserviksi. Tässä kirjallisuuskatsauksessa tarkastellaan vain sähköenergian varastointimenetelmiä. Tämän opinnäytetyön yhtenä tavoitteena on vertailla akkuja ja pumppuvoimalaitoksia. Pumppuvoimalaitokset ovat vanhaa teknologiaa ja todistettavasti tehokas ratkaisu sähköenergian varastointiin mutta niillä on paljon negatiivisia ympäristövaikutuksia ja ne ovat tilaa vieviä. Suurin osa nykyisistä sähköenergian varastointi ratkaisuista on pumppuvoimalaitoksia ja niitä voidaan käyttää taajuusohjaukseen veden virtausnopeutta säätämällä voimalaitoksissa. Akkujen vasteaika on kuitenkin millisekunteja, minkä takia ne olisivat ideaalisia taajuusohjaukseen sähköjärjestelmässä. Akkuja voitaisiin integroida sähköjärjestelmään kahdella eri tapaa. Hajautetusti kulutuksen puolella sähköjärjestelmää tai keskitetysti sähkötuotannon puolella. Hajautettujen akkujärjestelmien etuja olisi sähköjärjestelmän kuorman vähentäminen ja joustavuus. Hajautetut akkujärjestelmät ovat kuitenkin monimutkaisempia ja hintavampia kuin keskitetyt akkujärjestelmät. Keskitetyissä akkujärjestelmissä voidaan kuitenkin käyttää paljon erilaisia akkuja hajautettuihin akkujärjestelmiin verrattuna. Hajautetut akkujärjestelmät sopisivat enemmän taajuusohjaukseen, kun taas keskitetyt akkujärjestelmät kuormituksen tasapainottamiseen.

There is a trend in Sweden towards increasing the electricity production from renewable energy sources in the electric grid. The increased share of renewables could be seen as essential for Sweden to be able to meet the obligated climate goals. Integration of renewables will enable Sweden to be a progressive part in reducing greenhouse gases and decreasing the global warming. However, one issue with renewable energy sources is the inverter governed production. This, together with the decommission of larger synchronous generators, results in decreasing the inertia and increasing the instability inthe grid.  This thesis is dedicated to elaborating on frequency stability issues and investigating how Variable Speed Wind Turbines (VSWT) could contribute towards stabilized operation when included in frequency support services.  The study is generated through an extensive research process where focus areas are identified. Questions are purposed and then discussed through interviews with experienced people in the field. Estimated power production series from a wind turbine park (WTP) are applied in a constructed model to study the possibilities appearing when  including VSWTs in frequency support services. The income generated from including VSWTs in different regulation power market services is with the model compared against solely procuring the production capacity on the day ahead market. The studied frequency support services are then compared altogether to generate favorable solutions. The study examines both economic as well as technical features of the inclusion of VSWTs in frequency support services.  Results found in the study were that inclusion of wind turbines for power regulation purposes could be seen as increasingly manageable and needed in the electric grid. The maturity of technical solutions alongwith a transition in the regulation power market could be observed as leading factors. The diversification of regulation abilities and the increasing economic incentives in the regulation power market was also found to be important reasons for including wind turbines in the regulation power market. In the study, it was also found thataggregating the power production from several VSWT could increase the ability to deliver the studied services.  It was concluded that inclusion of VSWT in the frequency containment reserve during disturbed operation for down-regulation purposes as well as the fast frequency reserve was the most promising frequency support products for the inclusion of wind turbines. When including battery energy storages and to a larger part managing the durability demands for the services then the frequency contain reserve for normal operation and the frequency containment reserve for disturbed operation for upregulation purposes could be observed as preferable alternatives. Regulation abilities were concluded as achievable with the use of pitch and torque regulation techniques available in the variable speed wind turbine.

The Nordic synchronous grid is facing a number of challenges. The ongoingphaseout of synchronous generation coupled with increased penetration ofintermittent renewable generation is leading to reduced system inertia. Additionally,the electrification of sectors of the economy such as transport willresult in the addition of significant new electrical loads. All these factors arecontributing to increased complexities in maintaining the power balance. Assuch, it is imperative that every resource potentially capable of providing flexibility,on both sides of the balancing equation, must be closely examined.The electrification of private transport is a technology of growing interestthat can provide flexibility to the power system if adequately utilized. Electricvehicles (EV) can be considered as temporary energy storages with availability,energy and capacity constraints. If aggregated in sufficient numbers orcombined with other assets they can fulfill the minimum bid size of specificmarkets. Numerous previous references have studied the potential in aggregatingthe increasingly important EV charging load. However, they are basedon synthetic driving behavior and vehicle characteristics and commonly investigateonly energy arbitrage. Furthermore, no studies have examined an EVaggregator entering Nordic energy and primary reserve markets to the authors’best knowledge.In this study, we use first hand data of a real EV fleet of 806 Tesla vehiclesand their historical driving patterns to develop a two-stage stochastic optimizationproblem. Based on a scenario selection method, this research provides anoptimal risk-averse bidding strategy for an aggregator of EVs that places bidsin both the day ahead energy and primary reserve markets in the Nordicsthrough the use of GAMS/Matlab software. Only uni-directional charging isexamined, while we consider two sources of uncertainty from prices and vehicleutilization and model a risk averse aggregator that aims to maximize its profits.A case study is carried out modelling individual vehicles and their real worldcharacteristics and driving behavior in the price areas NO5 &amp; SE3 in Norway&amp; Sweden across a 24hr weekday period for winter and summer. Results showstrong alignment of EV availability and periods of high primary reserve marketprices, with consumption being shifted largely towards early hours of the morning.In Norway, 342 NOK can be expected as revenue from combined energyarbitrage and FCR-N per vehicle per year, while in Sweden the value is 1470SEK. When compared to a reference “cost of charging case”, up to 50% of thecost of charging can be covered in Norway, while the entire cost is essentiallymet in Sweden; resulting in the value proposition of “free charging” to the enduser.<br>Det nordiska synkroniserade elnätet står inför ett antal utmaningar. Utbytetav synkron generation i kombination med ökad penetration av intermittentförnybar generation leder till minskad svängmassa i systemet. Dessutom kommerelektrifiering av flera sektorer av ekonomin som transport resultera i enökad belastning av systemet. Alla dessa faktorer bidrar till ökad komplexitetatt upprätthålla kraftbalansen. Som sådan är det nödvändigt att varje resurssom potentiellt är kapabel att tillhandahålla flexibilitet, på båda sidor av balanseringsekvationen,måste undersökas noggrant.Elektrifiering av privat transport är en teknik av växande intresse somkan ge flexibilitet till elsystemet om det används tillfredsställande. Elektriskafordon (EV) kan betraktas som tillfälliga energilager. Om de aggregeras i tillräckligaantal eller i kombination med andra tillgångar kan de uppfylla minstabudstorlek för specifika marknader. Tidigare studier har studerat potentialenför att aggregera den allt viktigare EV laddningsbelastningen. De är dockbaserade på syntetiskt körbeteende och fordonsegenskaper och undersöker vanligtvisbara energiabitrage. Å andra sidan har inga undersökningar granskat enEV-aggregat som en del på den nordiska spotmarknaden och primärregleringentill författarens bästa kunskaper.I den här studien använder vi förstahandsuppgifter av en verklig EV-flottamed 806 Tesla-fordon och deras historiska körmönster för att utveckla ett stegastisktoptimeringsproblem i två steg. Baserat på en scenariosvalsmetod gerdenna forskning en optimal riskavvikande budstrategi för ett aggregat av EVsom placerar bud på både den dagliga spotmarknaden och primära reservmarknadeni Norden genom användningen av GAMS / Matlab. Endast enriktadladdning undersöks, medan vi betraktar två källor till osäkerhet från priseroch fordonsutnyttjande och modellerar en riskavvikande aggregator som syftartill att maximera vinsten. En fallstudie genomfördes modellering enskildafordon och deras verkliga världskaraktäristika och körbeteende i prisområdenaNO5 &amp; SE3 i Norge &amp; Sverige under en 24-timmars veckodag under vinter ochsommar. Resultatet visar starkt anpassning av EV-tillgängligheten och periodermed höga primära reservmarknadspriser, där konsumtionen förskjuts i storutsträckning mot tidigt på morgonen. I Norge kan 342 kronor förväntas somintäkter från energi arebitrage + FCR-N per fordon per år, medan i Sverigevärdet är 1470 SEK. Jämfört med en referens kostnad för laddning kan upp till50% av laddningskostnaden täckas i Norge, medan hela kostnaden i huvudsakmöts i Sverige.

The main purpose of this thesis was to develop and evaluate Key Performance Indicators (KPIs) and battery usage associated with Lithium-ion Battery Energy Storage Systems (LiBESS) used as Frequency Containment Reserve (FCR). The investigation was based on three of Vattenfall´s LiBESS projects that use the same lithium-ion battery technology but vary in system rating and configuration. It was found that two of the most important KPIs are response time and energy efficiency. The response time describes how fast the system can respond to changes in grid frequency. Additionally, the energy efficiency describes how effectively the system can provide energy storage during service and it can be parametrized into the efficiency of the battery, converter and transformer. The results show that all the considered LiBESS can fulfill the response time requirements of 30 seconds for FCR provision. In the future stricter requirements for the response time in grid stabilization services will most likely be required. Nevertheless, the results showed that a well configured LiBESS can provide response times on the millisecond scale. The energy efficiency evaluation showed that the system energy efficiency decreased from 89% to 85% when the power increased from 50% to 100% of rated power. At 75% of rated power it was found that the converter had the lowest efficiency (92%) based on the analysis of the efficiency of all the system components. It was also found that the power consumed by auxiliary loads was nearly constant for the examined power rates and that it significantly reduced the energy efficiency. Lastly, the battery usage analysis showed that the battery often idles or operates at low power rates if the frequency dead-band of ±10 mHz is applied around the nominal value of 50 Hz. Moreover, the battery usage can be characterized by an average State of Charge of 50% and a maximum Depth of Discharge of 30% during both charge and discharge of the batteries.

1.1 Macroeconomic summary Economic recovery has consistently outperformed the technical staff’s expectations following a steep decline in activity in the second quarter of 2020. At the same time, total and core inflation rates have fallen and remain at low levels, suggesting that a significant element of the reactivation of Colombia’s economy has been related to recovery in potential GDP. This would support the technical staff’s diagnosis of weak aggregate demand and ample excess capacity. The most recently available data on 2020 growth suggests a contraction in economic activity of 6.8%, lower than estimates from January’s Monetary Policy Report (-7.2%). High-frequency indicators suggest that economic performance was significantly more dynamic than expected in January, despite mobility restrictions and quarantine measures. This has also come amid declines in total and core inflation, the latter of which was below January projections if controlling for certain relative price changes. This suggests that the unexpected strength of recent growth contains elements of demand, and that excess capacity, while significant, could be lower than previously estimated. Nevertheless, uncertainty over the measurement of excess capacity continues to be unusually high and marked both by variations in the way different economic sectors and spending components have been affected by the pandemic, and by uneven price behavior. The size of excess capacity, and in particular the evolution of the pandemic in forthcoming quarters, constitute substantial risks to the macroeconomic forecast presented in this report. Despite the unexpected strength of the recovery, the technical staff continues to project ample excess capacity that is expected to remain on the forecast horizon, alongside core inflation that will likely remain below the target. Domestic demand remains below 2019 levels amid unusually significant uncertainty over the size of excess capacity in the economy. High national unemployment (14.6% for February 2021) reflects a loose labor market, while observed total and core inflation continue to be below 2%. Inflationary pressures from the exchange rate are expected to continue to be low, with relatively little pass-through on inflation. This would be compatible with a negative output gap. Excess productive capacity and the expectation of core inflation below the 3% target on the forecast horizon provide a basis for an expansive monetary policy posture. The technical staff’s assessment of certain shocks and their expected effects on the economy, as well as the presence of several sources of uncertainty and related assumptions about their potential macroeconomic impacts, remain a feature of this report. The coronavirus pandemic, in particular, continues to affect the public health environment, and the reopening of Colombia’s economy remains incomplete. The technical staff’s assessment is that the COVID-19 shock has affected both aggregate demand and supply, but that the impact on demand has been deeper and more persistent. Given this persistence, the central forecast accounts for a gradual tightening of the output gap in the absence of new waves of contagion, and as vaccination campaigns progress. The central forecast continues to include an expected increase of total and core inflation rates in the second quarter of 2021, alongside the lapse of the temporary price relief measures put in place in 2020. Additional COVID-19 outbreaks (of uncertain duration and intensity) represent a significant risk factor that could affect these projections. Additionally, the forecast continues to include an upward trend in sovereign risk premiums, reflected by higher levels of public debt that in the wake of the pandemic are likely to persist on the forecast horizon, even in the context of a fiscal adjustment. At the same time, the projection accounts for the shortterm effects on private domestic demand from a fiscal adjustment along the lines of the one currently being proposed by the national government. This would be compatible with a gradual recovery of private domestic demand in 2022. The size and characteristics of the fiscal adjustment that is ultimately implemented, as well as the corresponding market response, represent another source of forecast uncertainty. Newly available information offers evidence of the potential for significant changes to the macroeconomic scenario, though without altering the general diagnosis described above. The most recent data on inflation, growth, fiscal policy, and international financial conditions suggests a more dynamic economy than previously expected. However, a third wave of the pandemic has delayed the re-opening of Colombia’s economy and brought with it a deceleration in economic activity. Detailed descriptions of these considerations and subsequent changes to the macroeconomic forecast are presented below. The expected annual decline in GDP (-0.3%) in the first quarter of 2021 appears to have been less pronounced than projected in January (-4.8%). Partial closures in January to address a second wave of COVID-19 appear to have had a less significant negative impact on the economy than previously estimated. This is reflected in figures related to mobility, energy demand, industry and retail sales, foreign trade, commercial transactions from selected banks, and the national statistics agency’s (DANE) economic tracking indicator (ISE). Output is now expected to have declined annually in the first quarter by 0.3%. Private consumption likely continued to recover, registering levels somewhat above those from the previous year, while public consumption likely increased significantly. While a recovery in investment in both housing and in other buildings and structures is expected, overall investment levels in this case likely continued to be low, and gross fixed capital formation is expected to continue to show significant annual declines. Imports likely recovered to again outpace exports, though both are expected to register significant annual declines. Economic activity that outpaced projections, an increase in oil prices and other export products, and an expected increase in public spending this year account for the upward revision to the 2021 growth forecast (from 4.6% with a range between 2% and 6% in January, to 6.0% with a range between 3% and 7% in April). As a result, the output gap is expected to be smaller and to tighten more rapidly than projected in the previous report, though it is still expected to remain in negative territory on the forecast horizon. Wide forecast intervals reflect the fact that the future evolution of the COVID-19 pandemic remains a significant source of uncertainty on these projections. The delay in the recovery of economic activity as a result of the resurgence of COVID-19 in the first quarter appears to have been less significant than projected in the January report. The central forecast scenario expects this improved performance to continue in 2021 alongside increased consumer and business confidence. Low real interest rates and an active credit supply would also support this dynamic, and the overall conditions would be expected to spur a recovery in consumption and investment. Increased growth in public spending and public works based on the national government’s spending plan (Plan Financiero del Gobierno) are other factors to consider. Additionally, an expected recovery in global demand and higher projected prices for oil and coffee would further contribute to improved external revenues and would favor investment, in particular in the oil sector. Given the above, the technical staff’s 2021 growth forecast has been revised upward from 4.6% in January (range from 2% to 6%) to 6.0% in April (range from 3% to 7%). These projections account for the potential for the third wave of COVID-19 to have a larger and more persistent effect on the economy than the previous wave, while also supposing that there will not be any additional significant waves of the pandemic and that mobility restrictions will be relaxed as a result. Economic growth in 2022 is expected to be 3%, with a range between 1% and 5%. This figure would be lower than projected in the January report (3.6% with a range between 2% and 6%), due to a higher base of comparison given the upward revision to expected GDP in 2021. This forecast also takes into account the likely effects on private demand of a fiscal adjustment of the size currently being proposed by the national government, and which would come into effect in 2022. Excess in productive capacity is now expected to be lower than estimated in January but continues to be significant and affected by high levels of uncertainty, as reflected in the wide forecast intervals. The possibility of new waves of the virus (of uncertain intensity and duration) represents a significant downward risk to projected GDP growth, and is signaled by the lower limits of the ranges provided in this report. Inflation (1.51%) and inflation excluding food and regulated items (0.94%) declined in March compared to December, continuing below the 3% target. The decline in inflation in this period was below projections, explained in large part by unanticipated increases in the costs of certain foods (3.92%) and regulated items (1.52%). An increase in international food and shipping prices, increased foreign demand for beef, and specific upward pressures on perishable food supplies appear to explain a lower-than-expected deceleration in the consumer price index (CPI) for foods. An unexpected increase in regulated items prices came amid unanticipated increases in international fuel prices, on some utilities rates, and for regulated education prices. The decline in annual inflation excluding food and regulated items between December and March was in line with projections from January, though this included downward pressure from a significant reduction in telecommunications rates due to the imminent entry of a new operator. When controlling for the effects of this relative price change, inflation excluding food and regulated items exceeds levels forecast in the previous report. Within this indicator of core inflation, the CPI for goods (1.05%) accelerated due to a reversion of the effects of the VAT-free day in November, which was largely accounted for in February, and possibly by the transmission of a recent depreciation of the peso on domestic prices for certain items (electric and household appliances). For their part, services prices decelerated and showed the lowest rate of annual growth (0.89%) among the large consumer baskets in the CPI. Within the services basket, the annual change in rental prices continued to decline, while those services that continue to experience the most significant restrictions on returning to normal operations (tourism, cinemas, nightlife, etc.) continued to register significant price declines. As previously mentioned, telephone rates also fell significantly due to increased competition in the market. Total inflation is expected to continue to be affected by ample excesses in productive capacity for the remainder of 2021 and 2022, though less so than projected in January. As a result, convergence to the inflation target is now expected to be somewhat faster than estimated in the previous report, assuming the absence of significant additional outbreaks of COVID-19. The technical staff’s year-end inflation projections for 2021 and 2022 have increased, suggesting figures around 3% due largely to variation in food and regulated items prices. The projection for inflation excluding food and regulated items also increased, but remains below 3%. Price relief measures on indirect taxes implemented in 2020 are expected to lapse in the second quarter of 2021, generating a one-off effect on prices and temporarily affecting inflation excluding food and regulated items. However, indexation to low levels of past inflation, weak demand, and ample excess productive capacity are expected to keep core inflation below the target, near 2.3% at the end of 2021 (previously 2.1%). The reversion in 2021 of the effects of some price relief measures on utility rates from 2020 should lead to an increase in the CPI for regulated items in the second half of this year. Annual price changes are now expected to be higher than estimated in the January report due to an increased expected path for fuel prices and unanticipated increases in regulated education prices. The projection for the CPI for foods has increased compared to the previous report, taking into account certain factors that were not anticipated in January (a less favorable agricultural cycle, increased pressure from international prices, and transport costs). Given the above, year-end annual inflation for 2021 and 2022 is now expected to be 3% and 2.8%, respectively, which would be above projections from January (2.3% and 2,7%). For its part, expected inflation based on analyst surveys suggests year-end inflation in 2021 and 2022 of 2.8% and 3.1%, respectively. There remains significant uncertainty surrounding the inflation forecasts included in this report due to several factors: 1) the evolution of the pandemic; 2) the difficulty in evaluating the size and persistence of excess productive capacity; 3) the timing and manner in which price relief measures will lapse; and 4) the future behavior of food prices. Projected 2021 growth in foreign demand (4.4% to 5.2%) and the supposed average oil price (USD 53 to USD 61 per Brent benchmark barrel) were both revised upward. An increase in long-term international interest rates has been reflected in a depreciation of the peso and could result in relatively tighter external financial conditions for emerging market economies, including Colombia. Average growth among Colombia’s trade partners was greater than expected in the fourth quarter of 2020. This, together with a sizable fiscal stimulus approved in the United States and the onset of a massive global vaccination campaign, largely explains the projected increase in foreign demand growth in 2021. The resilience of the goods market in the face of global crisis and an expected normalization in international trade are additional factors. These considerations and the expected continuation of a gradual reduction of mobility restrictions abroad suggest that Colombia’s trade partners could grow on average by 5.2% in 2021 and around 3.4% in 2022. The improved prospects for global economic growth have led to an increase in current and expected oil prices. Production interruptions due to a heavy winter, reduced inventories, and increased supply restrictions instituted by producing countries have also contributed to the increase. Meanwhile, market forecasts and recent Federal Reserve pronouncements suggest that the benchmark interest rate in the U.S. will remain stable for the next two years. Nevertheless, a significant increase in public spending in the country has fostered expectations for greater growth and inflation, as well as increased uncertainty over the moment in which a normalization of monetary policy might begin. This has been reflected in an increase in long-term interest rates. In this context, emerging market economies in the region, including Colombia, have registered increases in sovereign risk premiums and long-term domestic interest rates, and a depreciation of local currencies against the dollar. Recent outbreaks of COVID-19 in several of these economies; limits on vaccine supply and the slow pace of immunization campaigns in some countries; a significant increase in public debt; and tensions between the United States and China, among other factors, all add to a high level of uncertainty surrounding interest rate spreads, external financing conditions, and the future performance of risk premiums. The impact that this environment could have on the exchange rate and on domestic financing conditions represent risks to the macroeconomic and monetary policy forecasts. Domestic financial conditions continue to favor recovery in economic activity. The transmission of reductions to the policy interest rate on credit rates has been significant. The banking portfolio continues to recover amid circumstances that have affected both the supply and demand for loans, and in which some credit risks have materialized. Preferential and ordinary commercial interest rates have fallen to a similar degree as the benchmark interest rate. As is generally the case, this transmission has come at a slower pace for consumer credit rates, and has been further delayed in the case of mortgage rates. Commercial credit levels stabilized above pre-pandemic levels in March, following an increase resulting from significant liquidity requirements for businesses in the second quarter of 2020. The consumer credit portfolio continued to recover and has now surpassed February 2020 levels, though overall growth in the portfolio remains low. At the same time, portfolio projections and default indicators have increased, and credit establishment earnings have come down. Despite this, credit disbursements continue to recover and solvency indicators remain well above regulatory minimums. 1.2 Monetary policy decision In its meetings in March and April the BDBR left the benchmark interest rate unchanged at 1.75%.