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Quantity-before-Price Auction: Evaluating the Performance of the Brazilian Existing Energy Market

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  • Rodrigo Moita
  • Leonardo Rezende
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    Abstract

    In this paper we study the outcome of the six rst \existing energy" auctions in Brazil. Under the current regulatory regime, the bulk of the trade between existing generators and distribution companies is done through bilateral eight-year contracts, negotiated in auctions organized by the regulatory agency. These so-called existing energy auctions follow a speci c rule that we call quantity-before-price auction. In this paper we develop an auction model to study this type of game and take the model to the data. The structural model enables us to estimate the opportunity cost of selling energy for each generator, which is the price they expect to obtain in the free market in the future. We nd that, while auction prices have steadily risen, the opportunity cost has increased even faster over time, indicating that the generators anticipate a faster increase in energy prices than what is measured by auction prices.

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    Bibliographic Info

    Paper provided by Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto in its series Working Papers with number 08-2010.

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    Date of creation: 2010
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    Handle: RePEc:fea:wpaper:08-2010

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    Keywords: Auctions; Electricity; Brazil;

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    1. Dutra, Joisa & Menezes, Flavio, 2005. "Lessons from the Electricity Auctions in Brazil," The Electricity Journal, Elsevier, vol. 18(10), pages 11-21, December.
    2. Guerre, E. & Perrigne, I. & Vuong, Q., 1995. "Nonparametric Estimation of First-Price Auctions," Papers 9504, Southern California - Department of Economics.
    3. Moita, Rodrigo M. S., 2006. "Entry and Externality: Hydroelectric Generators in Brazil," Insper Working Papers wpe_61, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
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