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The Brazilian Energy Market. Edvaldo A. Santana Superintendent of Market Studies. USEA / USAID / ANEEL Energy Partnership Program. ANEEL/FERC/MoPSC/UtahPSC Workshop Brasília, August 9 th , 2005. Outline. The Brazilian Power Industry. The Energy Market. Regulatory Framework.

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The Brazilian Energy Market

Edvaldo A. Santana

Superintendent of Market Studies

USEA / USAID / ANEEL

Energy Partnership Program

ANEEL/FERC/MoPSC/UtahPSC Workshop

Brasília, August 9th, 2005


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Outline

  • The Brazilian Power Industry

  • The Energy Market

  • Regulatory Framework

  • Trading Arrangements

  • Expansion Planning and Energy Auctions

  • Emerging Challenges

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The Brazilian Industry

  • Originally vertically integrated

  • Limited resources for expansion

  • Lack of incentives towards efficiency

  • Extra-large hydro units

  • Large thermal units

  • Small hydro units

  • Green energy

  • Long transmission links

  • Hydro domination

  • Plants in cascade

  • High demand growth rate

  • Long-term hydro regularization

  • Public utilities

  • Independent power producers

  • Self-producers

  • Co-generation

  • Merchants

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Statistics

Hydro 70,884 MW

Small hydro (< 30 MW) 1,421MW

Thermal 18,806 MW

Nuclear 2,007 MW

Wind 31 MW

Partial 93,149 MW

Import (excl. Itaipu) 8,170 MW

Emergency thermal 2,050 MW

TOTAL 103,369 MW

Annual Consumption 350 TWh

Consumers 51.2 millions

Growth rate ~ 4.5% year

Average tariff (2004) R$ 0.1975 / kWh

Annual revenue ~ R$ 70 billions

Transmission > 138 kV ~ 173,000 km

Network > 230 kV ~ 70,000 km


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The Brazilian Power Systems

Isolated Systems

installed capacity: 2,810 MW

Interconnected System

installed capacity: 92,389 MW

Import

8,170 MW

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The Brazilian Sub-systems

North

Cap: 6,466 MW

Load: 3,131 MW avg

Northeast

Cap: 15,646 MW

Load: 6,531 MW avg

Southeast/

Midwest

Cap: 53,163 MW

Load: 28,502 MW avg

South

Cap: 17,144 MW

Load: 7,465 MW avg

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International Exchanges

200 MW

Venezuela

Paraguay

70 MW

2,200 MW

  • Unlike the NordPool the energy markets are not integrated

Argentina

Uruguay

72 MW

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The Energy Market

  • Market of Differences

    • DISCOs have get into long-term PPAs for 100% of their demand requirements

    • GENCOs have to demonstrate “selling capacity”

    • PPAs are registered by the market operator (quantity only)

    • PPAs are cleared bilaterally @ contracted prices

    • System operator dispatches generation resources

    • Market operator calculates spot prices

    • Generation and consumption mismatches are cleared within the market operator environment @ spot prices

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Regulation @ ANEEL

Ruling

Monitoring

Mediation

Inspection and Auditing

Regulation

Fundamentally a political-economic concept

Why Regulate ?

Prevent market failures

(Monopoly power; Asymmetry of Information; Externalities)

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Generation – SRG

Optimisation models for dispatch and pricing; assured energy

Regulation at ANEEL

  • Transmission – SRT

    • Transmission tariffs; transmission standards

  • Distribution – SRD

    • Network distribution tariffs; reliability and quality indexes

  • Market – SEM

    • Rules for spot transactions; auctions; market monitoring

  • Retail trade – SRC

    • Free consumers; captive x DISCOs affairs; universal access

  • Economic – SRE

    • Energy tariffs; system fees

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Regulatory Framework

  • Market rules and procedures

    • Agents or CCEE can propose new rules and procedures

    • ANEEL approves and issues new rules

    • Transparency reached by public hearings

  • Arbitrate Chamber

    • Solves disputes between agents

    • ANEEL can mediate disputes

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IPP

IPP

GENCO

GENCO

Regulated Pool Auctions

Single-buyer model

Free Market

Traders

DISCO

DISCO

Regulated

Tariffs

Market prices

Free

Consumers

Captive

Consumers

Captive

Consumers

Free

Consumers

Trading Arrangements

Long-term market

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Trading Arrangements

Spot Market

  • Bilateral contracts (PPAs)

    • DISCOs have to contract bilaterally for 100% of their market requirements

    • PPAs have to be registered/approved by ANEEL

    • PPAs are registered in CCEE (only quantity)

    • PPAs are cleared bilaterally

    • ANEEL oversees “selling capacity”

    • CAP value to pass on to regulated supply tariffs

  • Spot market

    • Energy mismatches (contracted vs. measured) are cleared in the spot market

    • GENCOs can sell up to 100% of their capacity (merchants)

    • Traders can buy or sell

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Existing-energy Auctions

December 2004

Results:

  • 1,325 blocks

  • 17,008 MW avg

  • Prices (R$/MWh): 57.51(2005)

    67.33 (2006)

    75.46 (2007)

Products:

  • Blocks of 1 MW avg;

  • 8-year PPA (starting supply on 2005, 2006 and 2007)

17 GENCOs Selling to 34 DISCOs

~ 900 PPAs

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Existing-energy Auctions

April 2005

Results:

1,325 blocks

92,920 GWh

R$ 88.13 / MWh

R$ 7.7 Billions (8 years)

Products:

Blocks of 1 MW avg;

8-year PPA (starting supply on 2008)

34 DISCOs

0.43 – 57.24 MW avg

1 GENCO

450 MW avg

34 PPAs for each GENCO

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Market operator: long period of mis-operation (no clearing)

ANEEL

initial operation

Market Operator

(self-regulated)

Market Agreement

2002

1998

1999

1996

1997

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Market Operator regulation

ANEEL creation

ANEEL regulation

Market Rules

Market Operator: monthly clearing – less then 1% defaults

Market Operator

(regulated by ANEEL)

2002

2003

2004

2005

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Partial (50%) clearing of 25 months

Final (50%) clearing of 25 months

New model for the energy sector

Spot Market Evolution

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Average Spot Prices

Southeast / Midwest

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Consumers Choice

Free Consumers

June 2003:

292 GWh per month

June 2005:

6,935 GWh per month

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Emerging Challenges

  • Government

    • Ensure generation and transmission expansion

    • Guarantee the reliability and quality of supply

    • Environmental licensing

  • ANEEL

    • Rules and regulations for new-energyauctions

    • Increase transparency and credibility to attract investments

    • Financial guarantees for project finance (investment in new capacity)

    • Market monitoring

    • Tariffs review

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Generation Expansion Planning

Supply adequacy in the long term

Emerging Challenges (cont.)

New-energy Auctions

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New-Energy Auctions

  • Complimentary to the generation expansion planning

  • Single-buyer-like model

  • DISCOs inform demand requirements

  • System demand result from aggregating DISCOs´ needs

  • EPE propose list of candidate projects

  • Least-cost-based procurement

  • Winner of the auction will be awarded concessions (or authorization) and PPAs

  • Scheduled to happen late December 2005

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http://www.aneel.gov.br

Telefone: 0800 727 2010

Fax: (61) 3426 5705

[email protected]

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