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Working paper / Electricity

Assessment of the current regulatory framework for hydropower remuneration in Brazil

Author(s): BHAGWAT Pradyumna, MACHADO, Bruno Goulart F.

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ABSTRACT

The performance of two ongoing regulatory frameworks for hydropower remuneration in Brazil is analysed. The former is the status quo design, where the individual operational risks are mitigated by a risk-sharing principle within a hydro pool structure. The latter is an insurance approach, where a security framework enables the hydro generators to transfer their risks to the consumers. Three different long-term scenario settings are assessed by using stochastic optimisation techniques. The results suggest that the level of risk in the status quo design strongly relies on the generation mix evolution, notably thermal, rather than wind or solar generation. The current insurance approach is likely to drive a transfer of wealth from consumers to generators. This condition can be overcome by adapting the insurance premium setting criteria.