The Brazilian Power

Sector Reform
Bernardo Bezerra bernardo@psr-inc.com
 Gas
8.2%
6.4%

Natural
Fuel Oil

Coal
2.4%
Diesel and
7.9%
Wind
9.2%

Generation Mix 2017

Biomass
0.6% 1.3%
Solar Nuclear
Hydro Dominated

Hydro
64.0%

Transmission lover MW
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000

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Brazilian Power Sector at a Glance

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UTE

PLD (R$/MWh) 13/07/2016 21

Brazilian Power Sector Overview

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EOL

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100
200
700
800
900

300
400
500
600

0
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14/07/2016 01
UHE

Jan-00 14/07/2016 02
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Jan-01 14/07/2016 04
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Energy constrained

Jan-05
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Jan-07 14/07/2016 19
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Jan-09 14/07/2016 24

Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
High spot price volatility

Jan-16
Jan-17
Brazilian Power Sector Overview
Regulatory framework summary

100% contract Simplified Centralized Risk allocation

obligation auctions cost-based • Hydro plants face
• Expansion based • Contracts only for dispatch market risk
on auctions for energy • Thermal and
• Risk aversion of
the regulated • Other services are renewable market
the market set by
market not contracted risk passed
the government
(ancillary services, through the
flexibility, regulated
capacity, etc) consumers
Brazilian Power Sector Current Situation
Current market design is not sustainable

• Risk allocation centered on

the regulated consumers;
Spot price Fuel price
• Pressure for market volatility volatility
liberalization;
• Inefficient incentives for
renewables;
Transmission Expansion
• Increase of free consumers cost cost
and prosumers; Regulated
consumers
• Higher need for ancillary
services (hydro capacity
reduction and increase of
intermittent generation)
Brazilian Power Sector Perspectives
Power market reform

Improvement on the Clean energy Unbundle security of Market liberalization

price signals certificate market supply and energy • > 0.3 MW fully free
• Hourly prices • Changing the contracts after 2024
• Day ahead market mechanism to foster • System-wide
with price bids renewables capacity (and
• No volumetric tariffs energy) payment
• Locational signals mechanism
• Market risk allocated • Improvement on
to generators financing
• Ancillary service • Better allocation of
market the expansion cost
Brazilian Power Sector Perspectives
Sequence (preconditions)

Security of supply and

energy unbundling

Improvement on the
Market liberalization
price signals

Clean energy
certificate market
Brazilian Power Sector Perspectives
Timeline of changes (PSR’s view)

• Capacity market 2030

• Clean Energy
certificate market 50% free
2024 market
2023
• All consumers
at high voltage
• Hourly 2022 level can be
Spot Prices free
• Hourly tariffs
2020 • Ancillary
Service Market
• Incentivized
consumers can
by energy from
all sources
2018
30% free
market
Brazilian Power Sector Perspectives
Conclusions

• The original challenge for Brazil was to implement "competition for the
market".
– Due to the lack of credibility, the auctions were made in a simplified way using
only 1 attribute (energy) of the power plants and bundling security of supply and
energy in the same contract.
• Auctions were a success and in particular revealed the potential of
biomass, wind and solar, being a reference for the rest of the world.
– Problem: more complex electrical matrix and excessive allocation of risk to the
regulated consumer
• Current challenges: sustainability for opening the market and preparing
the model for the prosumer
• The modernization of the electric sector brings several challenges for
the modeling of electrical systems
 MUITO OBRIGADO!

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