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The Brazilian Energy MarketThe Brazilian Energy Market
ANEEL/FERC/MoPSC/UtahPSC WorkshopBrasília, August 9th, 2005
ANEEL/FERC/MoPSC/UtahPSC WorkshopBrasília, August 9th, 2005
Edvaldo A. SantanaSuperintendent of Market Studies
Edvaldo A. SantanaSuperintendent of Market Studies
USEA / USAID / ANEELEnergy Partnership Program
USEA / USAID / ANEELEnergy Partnership Program
Regulatory Framework Regulatory Framework
Expansion Planning and Energy Auctions Expansion Planning and Energy Auctions
The Energy Market The Energy Market
OutlineOutline
The Brazilian Power Industry The Brazilian Power Industry
Trading Arrangements Trading Arrangements
Emerging Challenges Emerging Challenges22
The Brazilian IndustryThe Brazilian Industry
Long transmission linksHydro dominationPlants in cascadeHigh demand growth rateLong-term hydro
regularization
Long transmission linksHydro dominationPlants in cascadeHigh demand growth rateLong-term hydro
regularization
Public utilitiesIndependent power producersSelf-producersCo-generationMerchants
Public utilitiesIndependent power producersSelf-producersCo-generationMerchants
Extra-large hydro unitsLarge thermal unitsSmall hydro unitsGreen energy
Extra-large hydro unitsLarge thermal unitsSmall hydro unitsGreen energy
Originally vertically integrated
Limited resources for expansion
Lack of incentives towards efficiency
Originally vertically integrated
Limited resources for expansion
Lack of incentives towards efficiency
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Hydro
70,884 MWSmall hydro (< 30 MW)
1,421 MWThermal
18,806 MWNuclear
2,007 MWWind
31 MWPartial
93,149 MW Import (excl. Itaipu)
8,170 MWEmergency thermal
2,050 MWTOTAL
103,369 MW
Hydro
70,884 MWSmall hydro (< 30 MW)
1,421 MWThermal
18,806 MWNuclear
2,007 MWWind
31 MWPartial
93,149 MW Import (excl. Itaipu)
8,170 MWEmergency thermal
2,050 MWTOTAL
103,369 MW
StatisticsStatistics
Annual Consumption 350 TWhConsumers 51.2 millionsGrowth rate ~ 4.5% yearAverage tariff (2004) R$ 0.1975 / kWhAnnual revenue ~ R$ 70 billionsTransmission > 138 kV ~ 173,000 kmNetwork > 230 kV ~ 70,000 km
Annual Consumption 350 TWhConsumers 51.2 millionsGrowth rate ~ 4.5% yearAverage tariff (2004) R$ 0.1975 / kWhAnnual revenue ~ R$ 70 billionsTransmission > 138 kV ~ 173,000 kmNetwork > 230 kV ~ 70,000 km
The Brazilian Power SystemsThe Brazilian Power Systems
Interconnected Systeminstalled capacity: 92,389 MW
Isolated Systemsinstalled capacity: 2,810 MW
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Import8,170 MW
The Brazilian Sub-systemsThe Brazilian Sub-systems
North
NortheastCap: 15,646 MW
Load: 6,531 MW avg
South
Southeast/MidwestCap: 53,163 MW
Load: 28,502 MW avg
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Cap: 17,144 MWLoad: 7,465 MW avg
Cap: 6,466 MWLoad: 3,131 MW avg
International ExchangesInternational Exchanges
Uruguay
Argentina
Venezuela
Paraguay
72 MW
2,200 MW
70 MW
200 MW
Unlike the NordPool the energy markets are not integrated
Unlike the NordPool the energy markets are not integrated
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The Energy MarketThe 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
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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RegulationRegulation
Why Regulate ?Why Regulate ?
Fundamentally a political-economic conceptFundamentally a political-economic concept
Regulation @ ANEELRegulation @ ANEEL
MonitoringMonitoring
Inspection and AuditingInspection and Auditing MediationMediation
RulingRuling
Prevent market failures(Monopoly power; Asymmetry of Information; Externalities)
Prevent market failures(Monopoly power; Asymmetry of Information; Externalities)
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Generation – SRG Optimisation models for dispatch and pricing; assured
energy
Generation – SRG Optimisation models for dispatch and pricing; assured
energy
Regulation at ANEELRegulation at ANEEL
Transmission – SRT Transmission tariffs; transmission standards
Transmission – SRT Transmission tariffs; transmission standards
Distribution – SRD Network distribution tariffs; reliability and quality indexes
Distribution – SRD Network distribution tariffs; reliability and quality indexes
Market – SEM Rules for spot transactions; auctions; market monitoring
Market – SEM Rules for spot transactions; auctions; market monitoring
Retail trade – SRC Free consumers; captive x DISCOs affairs; universal access
Retail trade – SRC Free consumers; captive x DISCOs affairs; universal access
Economic – SRE Energy tariffs; system fees
Economic – SRE Energy tariffs; system fees 1010
Regulatory FrameworkRegulatory Framework
Market rules and proceduresAgents or CCEE can propose new rules and proceduresANEEL approves and issues new rulesTransparency reached by public hearings
Market rules and proceduresAgents or CCEE can propose new rules and proceduresANEEL approves and issues new rulesTransparency reached by public hearings
Arbitrate ChamberSolves disputes between agentsANEEL can mediate disputes
Arbitrate ChamberSolves disputes between agentsANEEL can mediate disputes
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Trading ArrangementsLong-term marketTrading ArrangementsLong-term market
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Regulated
TariffsMarket prices
Regulated Pool Auctions
Single-buyer model
GENCO
CaptiveConsumers
CaptiveConsumers
FreeConsumers
FreeConsumers
GENCO IPP IPP
DISCO DISCO Traders
Free Market
Trading ArrangementsSpot MarketTrading ArrangementsSpot MarketBilateral 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
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
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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Products:• Blocks of 1 MW avg;• 8-year PPA (starting supply
on 2005, 2006 and 2007)
Products:• Blocks of 1 MW avg;• 8-year PPA (starting supply
on 2005, 2006 and 2007)
17 GENCOs Selling to 34 DISCOs17 GENCOs Selling to 34 DISCOs
~ 900 PPAs~ 900 PPAs1414
Existing-energy AuctionsDecember 2004Existing-energy AuctionsDecember 2004
Results:• 1,325 blocks• 17,008 MW avg• Prices (R$/MWh): 57.51(2005)
67.33 (2006)75.46 (2007)
Results:• 1,325 blocks• 17,008 MW avg• Prices (R$/MWh): 57.51(2005)
67.33 (2006)75.46 (2007)
Products:Blocks of 1 MW avg;8-year PPA (starting
supply on 2008)
Products:Blocks of 1 MW avg;8-year PPA (starting
supply on 2008)
1 GENCO450 MW avg1 GENCO
450 MW avg
34 DISCOs0.43 – 57.24 MW avg
34 DISCOs0.43 – 57.24 MW avg
34 PPAs for each GENCO34 PPAs for each GENCO 1515
Existing-energy AuctionsApril 2005Existing-energy AuctionsApril 2005
Results:1,325 blocks92,920 GWh
R$ 88.13 / MWh R$ 7.7 Billions (8 years)
Results:1,325 blocks92,920 GWh
R$ 88.13 / MWh R$ 7.7 Billions (8 years)
Spot Market EvolutionSpot Market Evolution
2002
J J JMMF A A SO N D
Market OperatorMarket Operator(regulated by ANEEL)(regulated by ANEEL)
Partial (50%) clearing Partial (50%) clearing of 25 monthsof 25 months
J F M A M J J A S O N D
2005
New model for the New model for the energy sectorenergy sector
J F M A M J J A S O N D
2003
J F M A M J J A S O N D
2004
Final (50%) clearing Final (50%) clearing of 25 monthsof 25 months
Market Operator: monthly Market Operator: monthly clearing – less then 1% defaultsclearing – less then 1% defaults
Market OperatorMarket Operator(self-regulated)(self-regulated)
D
1996
J F M A M J J A S O N D
1997
J F M A M J J A S O N D
1998
ANEEL ANEEL regulationregulation
ANEELANEELinitial operationinitial operation
Market Operator Market Operator regulationregulation
J F M A M J J A S O N D
1999
Market Market AgreementAgreement
Market RulesMarket RulesANEEL ANEEL creationcreation
Market operator: long period of Market operator: long period of mis-operation (no clearing)mis-operation (no clearing)
J F M A M J J A S O N D
2000 2001 2002
J FM A JJ JM MFSO N DA
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Average Spot PricesSoutheast / MidwestAverage Spot PricesSoutheast / Midwest
0,00
5,00
10,00
15,00
20,00
25,00
30,00
35,00
40,00
45,00
fev/0
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abr/0
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jun/0
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ago/
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out/0
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dez/0
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fev/0
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abr/0
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jun/0
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ago/
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out/0
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fev/0
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abr/0
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R$/
MW
h
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Free ConsumersFree Consumers
Consumers ChoiceConsumers Choice
June 2003:
292 GWh per month
June 2003:
292 GWh per month
June 2005:
6,935 GWh per month
June 2005:
6,935 GWh per month
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GovernmentEnsure generation and transmission expansionGuarantee the reliability and quality of supplyEnvironmental licensing
GovernmentEnsure generation and transmission expansionGuarantee the reliability and quality of supplyEnvironmental licensing
Emerging ChallengesEmerging Challenges
ANEELRules and regulations for new-energy auctions Increase transparency and credibility to attract
investmentsFinancial guarantees for project finance (investment
in new capacity)Market monitoringTariffs review
ANEELRules and regulations for new-energy auctions Increase transparency and credibility to attract
investmentsFinancial guarantees for project finance (investment
in new capacity)Market monitoringTariffs review 1919
New-energy AuctionsNew-energy Auctions
Supply adequacy in the long term
Generation Expansion Planning
2020
Emerging Challenges (cont.)Emerging Challenges (cont.)
New-Energy AuctionsNew-Energy Auctions
Single-buyer-like modelDISCOs inform demand requirementsSystem demand result from aggregating DISCOs´ needsEPE propose list of candidate projectsLeast-cost-based procurementWinner of the auction will be awarded concessions (or
authorization) and PPAs
Single-buyer-like modelDISCOs inform demand requirementsSystem demand result from aggregating DISCOs´ needsEPE propose list of candidate projectsLeast-cost-based procurementWinner of the auction will be awarded concessions (or
authorization) and PPAs
Complimentary to the generation expansion planning
Complimentary to the generation expansion planning
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Scheduled to happen late December 2005Scheduled to happen late December 2005