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Policy Brief / Energy

Enhancing flexibility and ensuring efficiency and security: Improving the electricity market in Brazil

Author(s): CALABRIA Felipe A., SARAIVA Tome J., GLACHANT Jean-Michel

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ABSTRACT

• Electricity industries have evolved to ensure fair competition, higher efficiency, declining prices and reliability of operation. The Brazilian electricity market is characterised by having around 75% of installed capacity coming from renewables, and has gone through two reforms in recent years. Nowadays, it contains certain particularities that distinguish it from other markets.

• Nevertheless, the conciliation between commercial commitments and the physical dispatch is not smooth. There is a lack of “trading opportunities” to encourage participants to comply with their contracts. Moreover, the Brazilian short-term market acts as a mechanism to settle differences rather than a true market and, neither the short-term price nor the dispatch schedule is determined by the market.

• If a more market- oriented approach is to be adopted, certain dilemmas have to be faced. This brief describes a new market framework, aimed at enhancing flexibility to enable participants to sustain their contracts, while ensuring the efficient use of the energy resources and maintaining the current level of the security of supply.

• In this new market design, two worlds would coexist: the real one, associated with the power system and with physical effects; and the virtual one, related to the settlement system and with commercial effects. By doing so, the ISO can physically operate the power system in an optimised way, and generators can manage their contracts strongly supported by their level of risk perception.

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