The Brazilian Power Sector Reform

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Presentation transcript:

The Brazilian Power Sector Reform Bernardo Bezerra bernardo@psr-inc.com

High spot price volatility Brazilian Power Sector Overview Brazilian Power Sector at a Glance Hydro Dominated Energy constrained Generation Mix 2017 Transmission lover High spot price volatility

Brazilian Power Sector Overview Regulatory framework summary 100% contract obligation Expansion based on auctions for the regulated market Simplified auctions Contracts only for energy Other services are not contracted (ancillary services, flexibility, capacity, etc) Centralized cost-based dispatch Risk aversion of the market set by the government Risk allocation Hydro plants face market risk Thermal and renewable market risk passed through the regulated consumers

Brazilian Power Sector Current Situation Current market design is not sustainable Regulated consumers Transmission cost Spot price volatility Fuel price volatility Expansion cost Risk allocation centered on the regulated consumers; Pressure for market liberalization; Inefficient incentives for renewables; Increase of free consumers and prosumers; Higher need for ancillary services (hydro capacity reduction and increase of intermittent generation)

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

Brazilian Power Sector Perspectives Sequence (preconditions) Security of supply and energy unbundling Improvement on the price signals Market liberalization Clean energy certificate market

Brazilian Power Sector Perspectives Timeline of changes (PSR’s view) 2020 2022 2023 2024 Capacity market Clean Energy certificate market 2030 50% free market All consumers at high voltage level can be free Hourly Spot Prices Hourly tariffs 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! www.psr-inc.com psr@psr-inc.com +55 21 3906-2100