Assessment of the Current Regulatory Framework for Hydropower Remuneration in Brazil

42 Pages Posted: 8 Feb 2019

See all articles by Bruno Goulart F. Machado

Bruno Goulart F. Machado

Brazilian Energy Regulator - ANEEL

Pradyumna Bhagwat

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Date Written: February 2019

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.

Keywords: Hydropower; Risk Assessment; Call Options Obligations; Energy Allocation Mechanism; SDDP modelling

Suggested Citation

Goulart F. Machado, Bruno and Bhagwat, Pradyumna, Assessment of the Current Regulatory Framework for Hydropower Remuneration in Brazil (February 2019). Robert Schuman Centre for Advanced Studies Research Paper No. RSCAS 2019/12, Available at SSRN: https://ssrn.com/abstract=3330576 or http://dx.doi.org/10.2139/ssrn.3330576

Bruno Goulart F. Machado (Contact Author)

Brazilian Energy Regulator - ANEEL ( email )

Pradyumna Bhagwat

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

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