IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v137y2020ics0301421519307165.html
   My bibliography  Save this article

The impact of the generation mix on the current regulatory framework for hydropower remuneration in Brazil

Author

Listed:
  • Machado, Bruno Goulart F.
  • Bhagwat, Pradyumna C.

Abstract

The impact of the generation mix on the two ongoing regulatory frameworks for hydropower remuneration in Brazil is analysed. In the first, Energy Allocation Mechanism (EAM), individual operational risks are mitigated by a risk-sharing principle within a hydro pool structure. The second, Insurance Call Option Obligation (ICO), is an insurance approach which enables the hydro generators to transfer their risks to the consumers. The frameworks are assessed for three long-term scenarios, with a varying share of non-hydro renewables and thermal sources in the generation mix, using a Stochastic Dual Dynamic Programming (SDDP) approach. The results indicate that the generation mix may considerably influence EAM performance and hydropower economic feasibility. An increase in base-load and peak-load thermal generation influences EAM performance negatively, while the penetration of RES does not yield significant impacts if its expansion is met by equivalent increment in load. The ICO approach drives significant transfer of wealth from consumers to generators, which can be addressed by adapting the insurance premium setting criteria, as presented in this study. Finally, ICO design may lead to an overall improvement in the market level welfare, when compared to the EAM, if a criterion of equivalence is set as a preferable design goal.

Suggested Citation

  • Machado, Bruno Goulart F. & Bhagwat, Pradyumna C., 2020. "The impact of the generation mix on the current regulatory framework for hydropower remuneration in Brazil," Energy Policy, Elsevier, vol. 137(C).
    • Handle: RePEc:eee:enepol:v:137:y:2020:i:c:s0301421519307165
    DOI: 10.1016/j.enpol.2019.111129
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301421519307165
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.enpol.2019.111129?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Almeida Prado, Fernando & Athayde, Simone & Mossa, Joann & Bohlman, Stephanie & Leite, Flavia & Oliver-Smith, Anthony, 2016. "How much is enough? An integrated examination of energy security, economic growth and climate change related to hydropower expansion in Brazil," Renewable and Sustainable Energy Reviews, Elsevier, vol. 53(C), pages 1132-1136.
    2. Merton, Robert C & Scholes, Myron S & Gladstein, Mathew L, 1978. "The Returns and Risk of Alternative Call Option Portfolio Investment Strategies," The Journal of Business, University of Chicago Press, vol. 51(2), pages 183-242, April.
    3. Ansar, Atif & Flyvbjerg, Bent & Budzier, Alexander & Lunn, Daniel, 2014. "Should we build more large dams? The actual costs of hydropower megaproject development," Energy Policy, Elsevier, vol. 69(C), pages 43-56.
    4. Amundsen, Eirik S. & Bergman, Lars, 2006. "Why has the Nordic electricity market worked so well?," Utilities Policy, Elsevier, vol. 14(3), pages 148-157, September.
    5. Ludovic Gaudard & Jeannette Gabbi & Andreas Bauder & Franco Romerio, 2016. "Long-term Uncertainty of Hydropower Revenue Due to Climate Change and Electricity Prices," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 30(4), pages 1325-1343, March.
    6. Furió, Dolores & Meneu, Vicente, 2010. "Expectations and forward risk premium in the Spanish deregulated power market," Energy Policy, Elsevier, vol. 38(2), pages 784-793, February.
    7. Fleten, Stein-Erik & Bråthen, Espen & Nissen-Meyer, Sigurd-Erik, 2010. "Evaluation of static hedging strategies for hydropower producers in the Nordic market," MPRA Paper 27133, University Library of Munich, Germany.
    8. Luiz T. A. Maurer & Luiz A. Barroso, 2011. "Electricity Auctions : An Overview of Efficient Practices," World Bank Publications - Books, The World Bank Group, number 2346, December.
    9. Hirth, Lion, 2016. "The benefits of flexibility: The value of wind energy with hydropower," Applied Energy, Elsevier, vol. 181(C), pages 210-223.
    10. Hunt., Julian David & Stilpen, Daniel & de Freitas, Marcos Aurélio Vasconcelos, 2018. "A review of the causes, impacts and solutions for electricity supply crises in Brazil," Renewable and Sustainable Energy Reviews, Elsevier, vol. 88(C), pages 208-222.
    11. Kjaerland, Frode, 2007. "A real option analysis of investments in hydropower--The case of Norway," Energy Policy, Elsevier, vol. 35(11), pages 5901-5908, November.
    12. Hongling, Liu & Chuanwen, Jiang & Yan, Zhang, 2008. "A review on risk-constrained hydropower scheduling in deregulated power market," Renewable and Sustainable Energy Reviews, Elsevier, vol. 12(5), pages 1465-1475, June.
    13. Priscila Lino & Luiz Barroso & Mario Pereira & Rafael Kelman & Márcia Fampa, 2003. "Bid-Based Dispatch of Hydrothermal Systems in Competitive Markets," Annals of Operations Research, Springer, vol. 120(1), pages 81-97, April.
    14. Zapata, Sebastian & Castaneda, Monica & Garces, Estefany & Franco, Carlos Jaime & Dyner, Isaac, 2018. "Assessing security of supply in a largely hydroelectricity-based system: The Colombian case," Energy, Elsevier, vol. 156(C), pages 444-457.
    15. Fernandes, Gláucia & Gomes, Leonardo Lima & Brandão, Luiz Eduardo Teixeira, 2018. "A risk-hedging tool for hydro power plants," Renewable and Sustainable Energy Reviews, Elsevier, vol. 90(C), pages 370-378.
    16. Ludovic Gaudard & Jeannette Gabbi & Andreas Bauder & Franco Romerio, 2016. "Long-term Uncertainty of Hydropower Revenue Due to Climate Change and Electricity Prices," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 30(4), pages 1325-1343, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Arthur Lauro & Daniel Kitamura & Waleska Lima & Bruno Dias & Tiago Soares, 2023. "Considering Forward Electricity Prices for a Hydro Power Plant Risk Analysis in the Brazilian Electricity Market," Energies, MDPI, vol. 16(3), pages 1-13, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gaudard, Ludovic & Avanzi, Francesco & De Michele, Carlo, 2018. "Seasonal aspects of the energy-water nexus: The case of a run-of-the-river hydropower plant," Applied Energy, Elsevier, vol. 210(C), pages 604-612.
    2. Shen, Jian-jian & Cheng, Chun-tian & Jia, Ze-bin & Zhang, Yang & Lv, Quan & Cai, Hua-xiang & Wang, Bang-can & Xie, Meng-fei, 2022. "Impacts, challenges and suggestions of the electricity market for hydro-dominated power systems in China," Renewable Energy, Elsevier, vol. 187(C), pages 743-759.
    3. Cook, David & Malinauskaite, Laura & Davíðsdóttir, Brynhildur & Ögmundardóttir, Helga, 2021. "Co-production processes underpinning the ecosystem services of glaciers and adaptive management in the era of climate change," Ecosystem Services, Elsevier, vol. 50(C).
    4. Guittet, Mélanie & Capezzali, Massimiliano & Gaudard, Ludovic & Romerio, Franco & Vuille, François & Avellan, François, 2016. "Study of the drivers and asset management of pumped-storage power plants historical and geographical perspective," Energy, Elsevier, vol. 111(C), pages 560-579.
    5. Peña, Juan Ignacio & Rodriguez, Rosa, 2018. "Default supply auctions in electricity markets: Challenges and proposals," Energy Policy, Elsevier, vol. 122(C), pages 142-151.
    6. Fernandes, Gláucia & Gomes, Leonardo Lima & Brandão, Luiz Eduardo Teixeira, 2018. "A risk-hedging tool for hydro power plants," Renewable and Sustainable Energy Reviews, Elsevier, vol. 90(C), pages 370-378.
    7. Li, Xiao & Liu, Pan & Wang, Yibo & Yang, Zhikai & Gong, Yu & An, Rihui & Huang, Kangdi & Wen, Yan, 2022. "Derivation of operating rule curves for cascade hydropower reservoirs considering the spot market: A case study of the China's Qing River cascade-reservoir system," Renewable Energy, Elsevier, vol. 182(C), pages 1028-1038.
    8. Melo, Leonardo B. & Estanislau, Fidéllis B.G.L.e & Costa, Antonella L. & Fortini, Ângela, 2019. "Impacts of the hydrological potential change on the energy matrix of the Brazilian State of Minas Gerais: A case study," Renewable and Sustainable Energy Reviews, Elsevier, vol. 110(C), pages 415-422.
    9. Romeiro, Diogo Lisbona & Almeida, Edmar Luiz Fagundes de & Losekann, Luciano, 2020. "Systemic value of electricity sources – What we can learn from the Brazilian experience?," Energy Policy, Elsevier, vol. 138(C).
    10. Janeth Carolina Godoy & Daniel Villamar & Rafael Soria & César Vaca & Thomas Hamacher & Freddy Ordóñez, 2021. "Preparing the Ecuador’s Power Sector to Enable a Large-Scale Electric Land Transport," Energies, MDPI, vol. 14(18), pages 1-22, September.
    11. François, B., 2016. "Influence of winter North-Atlantic Oscillation on Climate-Related-Energy penetration in Europe," Renewable Energy, Elsevier, vol. 99(C), pages 602-613.
    12. Alejandro Castillo-Ramírez & Diego Mejía-Giraldo, 2021. "Measuring Financial Impacts of the Renewable Energy Based Fiscal Policy in Colombia under Electricity Price Uncertainty," Sustainability, MDPI, vol. 13(4), pages 1-28, February.
    13. Henao, Felipe & Dyner, Isaac, 2020. "Renewables in the optimal expansion of colombian power considering the Hidroituango crisis," Renewable Energy, Elsevier, vol. 158(C), pages 612-627.
    14. Plaga, Leonie Sara & Bertsch, Valentin, 2023. "Methods for assessing climate uncertainty in energy system models — A systematic literature review," Applied Energy, Elsevier, vol. 331(C).
    15. Liu Yuan & Jianzhong Zhou & Chunlong Li & Mengfei Xie & Li Mo, 2016. "Benefit and Risk Balance Optimization for Stochastic Hydropower Scheduling," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 30(10), pages 3347-3361, August.
    16. Brandão, Lucas G.L. & Ehrl, Philipp, 2022. "The impact of transmission auctions on Brazilian electric power companies," Utilities Policy, Elsevier, vol. 78(C).
    17. Sgarbi, Felipe de Albuquerque & Uhlig, Alexandre & Simões, André Felipe & Goldemberg, José, 2019. "An assessment of the socioeconomic externalities of hydropower plants in Brazil," Energy Policy, Elsevier, vol. 129(C), pages 868-879.
    18. Gaudard, Ludovic, 2015. "Pumped-storage project: A short to long term investment analysis including climate change," Renewable and Sustainable Energy Reviews, Elsevier, vol. 49(C), pages 91-99.
    19. Ludovic Gaudard & Franco Romerio, 2020. "A Conceptual Framework to Classify and Manage Risk, Uncertainty and Ambiguity: An Application to Energy Policy," Energies, MDPI, vol. 13(6), pages 1-22, March.
    20. Fernandes, Gláucia & Lima Gomes, Leonardo & Teixeira Brandão, Luiz Eduardo, 2019. "Mitigating Hydrological Risk with Energy Derivatives," Energy Economics, Elsevier, vol. 81(C), pages 528-535.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:137:y:2020:i:c:s0301421519307165. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.