Bernardo Bezerra

Auctions of contracts and energy call options to ensure supply adequacy in the second stage of the Brazilian power sector reform

The reform process in the electricity sector of any country has as main objective the design of a power market capable to induce a reliable and efficient energy supply, translated into adequate tariffs. Brazil started its reform process in 1996, inspired by similar schemes in the electricity sector of more developed countries. However, the existence of particularities in the countrys hydroelectric energy market, such as weak spot price signals for system expansion and difficulties to determine benchmark prices, avoided a smooth transition to a fully deregulated market. In 2004, a revisited power sector model was launched, aiming at alleviating the difficulties of the first model. The core of the new proposals lies on the use of contract obligation and energy supply auctions as the backbone for the efficient contracting and supply adequacy. Supply auctions were held in 2004-2005, with a volume of about 20,000 average MW contracted involving about 60 billion USD in financial transactions. This work discusses the implementation of auctions of energy contracts and call options in Brazil as part of the mechanisms to ensure supply adequacy adopted in the second stage of its power sector reform

Making Room for the Boom

The need to facilitate the connection and integration of renewables will require fundamental changes in the technical, commercial, and regulatory arrangements associated with electricity networks, however. In this framework, the article presents three study cases: the United Kingdom, focusing on transmission, and Brazil and Chile, covering both transmission and distribution networks. These experiences illustrate a diverse array of network impacts due to the increasing amount of renewables, including network design, access, pricing, and regulation.

Ensuring Resource Adequacy with Auctions of Options and Forward Contracts

The implementation of auctions of long-term firm energy call options and forward contracts as part of the instruments adopted in emerging countries to ensure resource adequacy is discussed. These mechanisms are being implemented in Latin American nations (Brazil, Chile, Peru, El Salvador and Panama) and fast-growing economies in Europe such as Turkey. Brazil has led this process and in overall has auctioned about 25,000 average MW of contracts, involving about 65 billion USD in financial transactions, while Chile has carried out its first auction in 2006, involving about 1,300 average MW (30% of energy sales of the main interconnected Chilean system expected for 2010). Overall, this mechanism is proving to be adequate to attract investments and ensure resource adequacy.

A delicate balance in South America

This article deals with the challenges of balancing the need for hydroelectricity with the impact on the environment. Economic efficiency, energy security, and environmental sustainability are concerns that must be considered in any energy policy in any given country. These key aspects remain challenged currently in South America. High energy consumption growth worldwide rising fossil fuels prices, strong environmentalist pressure toward reducing greenhouse gas effects, and promotion of renewable energy production have been a common challenge in South American energy markets. The development of vast unexploited hydroelectric resources is also at the center of attention, where its renewable character is being confronted with its environmental impact.

Wind power insertion through energy auctions in Brazil

Brazil has a large potential for wind: it is estimated that nearly 140,000 MW of wind energy generating capacity could be built in the country. In December 2009 a specific auction to contract wind power was carried out. The motivation of this auction was to take advantage of the 2008–2009 world financial crisis that has lowered equipment cost as well as to foster competition among the interested investors, thus starting the development of this technology in the country in a larger scale. The product offered - a 20 year energy contract - has particular characteristics that try to accommodate wind variability and mechanisms to penalize productions above/below a given annual energy threshold. The objective of this work is to discuss the wind power auction in Brazil. We describe the auction motivation, product, organization, procedure, results and present our critical analysis. The information presented in this work may be useful for other countries willing to adopt the same mechanism.

Bidding strategies in auctions for long-term electricity supply contracts for new capacity

The objective of this work is to discuss the modeling of auctions of long-term electricity supply contracts for new capacity in Brazil. The modeling of risks such as price-quantity (hydrological) risk, project completion risk, environmental constraints, climate change and regulatory risks are discussed. An analytical model will be developed to price these risks and case studies will be presented for real projects that have participated in the Brazilian contract auctions for new capacity. We also discuss selection of projects with different risks.

Auctioning adequacy in south america through long-term contracts and options: From classic pay-as-bid to multi-item dynamic auctions

The adequacy problem in electricity market is becoming a very important issue as there is neither theoretical proof nor practical evidence of correct delivering of sufficient and timely generation capacity when it is needed in a real (imperfect) environment. In contrast, classical market design seems to fail when facing high demand growth and/or large hydro share as seen in several Latin American countries such as Chile, Brazil, Colombia and Peru among others. Currently, various mechanisms have arisen across this region with the intention of stimulating energy procurement and new investment. These are mainly based on long-term contract and options obligations, which are allocated through auctions. Auction theory then becomes very important to ensure optimal allocation and efficient prices for both the new generation and the end user. However, difficulties arise when applying pure auction theory because basic hypotheses are not met by most electricity markets. The objective of this paper is to address and discuss the Latin American experience with auction design for long-term contracts focusing on practical design and theory. The different mechanisms and auctions for ensuring supply adequacy are listed along with theoretical justification as part of the potential solution for the adequacy problem that different economies have proposed.

LNG in South America: the markets, the prices and the security of supply

South America has emerged in recent years as one of the most dynamic regions for natural gas and electricity development. The continent boasts natural gas reserves and high-growth energy markets. The need to diversify away from heavy investments in hydropower and expensive oil is driving many countries to promote the use of natural gas, especially for power generation. On the other hand, challenges are being observed such as competition between hydro- and thermal generation, the breaking of cross-country natural gas agreements, competition between natural gas and other resources for power generation and electric transmission, and others. More recently, LNG started to be considered an option to ensure the adequacy of natural gas supply for power generation. Brazil and Chile are leading the implementation process of regasification facilities. However, the region has also potential to become an exporter of LNG in the medium-term once the potential gas reserves that require deep drilling become commercially available. This paper discusses the introduction of LNG in South America, focusing on the markets, the prices and the security of supply.

Expansion Pressure: Energy Challenges in Brazil and Chile

In Latin America, primary energy demand is projected to grow on average by 1.7% per year and to reach 830 million tons of oil equivalent (mtoe) by 2035, according to the International Energy Agencys 2011 World Energy Outlook. Demand for renewables in the power generation sector in the region will double over that period, reaching nearly 140 mtoe in 2035. Furthermore, the IEA projects that biofuels use in road transport will increase by more than 4% per year, reaching 1 million barrels per day (mb/d) by 2035, representing around 25% of fuel consumption in the sector. The economic giant in the region, Brazil, will increase its primary energy consumption to 420 mtoe in 2035, representing more than half of the regional total.

Measuring the hydroelectric regularization capacity of the Brazilian hydrothermal system

The storage capacity (or “regularization capacity”) of a hydro system refers essentially to its capability of transferring excess inflow energy from wet to dry seasons. The Brazilian hydro power system is formed by hundreds of reservoirs capable of multi-year storage capacity. Historically, this has been measured in the Brazilian Power System in terms of the duration of the critical period, which in turn is obtained from optimization models that calculate the firm energy (FE) of hydroelectric systems. These models, however, only represent the hydroelectric system explicitly and do not take into account the synergy between hydro and thermal plants. This synergy can be an important aspect in defining the storage capacity of the hydrothermal system. The objective of this article is: (i) to define a methodology for measuring the regularization capacity of a generation system; (ii) to analyze by this measure the current regularization capacity of the Brazilian system; and (iii) to analyze the impact of the development of large-scale run-of-the-river hydro plants that are in the pipeline to start commissioning in the next years.