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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

Thermal18,806 MW

Nuclear2,007 MW

Wind31 MW

Partial93,149 MW

Import (excl. Itaipu)8,170 MW

Emergency thermal2,050 MW

TOTAL103,369 MW

Annual Consumption350 TWh

Consumers51.2 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

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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)

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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

institucional@aneel.gov.br

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