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Dynamics of risk management tools and auctions in the second phase of the Brazilian Electricity Market reform

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  • de Souza, Fabio Cavaliere
  • Legey, Luiz Fernando Loureiro

Abstract

In 2004, the reform of the Brazilian Electricity Market underwent a thorough revision. One of its causes was the electricity rationing that began in June 2001 and lasted until February 2002. Among other measures, the 2004 revision devised new mechanisms intended to reduce risks associated to contracts settled in electricity auctions and those related to investments in new generation plants. As 4 years have passed since the onset of the reform's revision, sufficiently enough data are now available for an analysis of the post-revision dynamics of the Brazilian Electricity Market. This is the purpose of the present paper. We focus on the dynamics of the different types of electricity auctions and on the so-called Mechanism for Compensation of Surpluses and Deficits, both created in the wake of the 2004 revision. The ultimate goal is to understand the behavior of the agents involved in auctions - notably buyers and sellers of electricity - and propose remedial actions to eliminate existing loopholes in the present regulatory framework. To achieve this goal, four steps were necessary. Firstly, a data base to support the analysis was built. Then, the main drivers of the dynamics of the risk management tools were identified. Finally, consequences of the implemented changes were discussed and corrections for observed pitfalls proposed.

Suggested Citation

  • de Souza, Fabio Cavaliere & Legey, Luiz Fernando Loureiro, 2010. "Dynamics of risk management tools and auctions in the second phase of the Brazilian Electricity Market reform," Energy Policy, Elsevier, vol. 38(4), pages 1715-1733, April.
  • Handle: RePEc:eee:enepol:v:38:y:2010:i:4:p:1715-1733
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    References listed on IDEAS

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    1. Luiz da Silva, Edson, 2006. "Supply adequacy in electricity markets based on hydro systems--the Brazilian case," Energy Policy, Elsevier, vol. 34(15), pages 2002-2011, October.
    2. Mendonca, Augusto F. & Dahl, Carol, 1999. "The Brazilian electrical system reform," Energy Policy, Elsevier, vol. 27(2), pages 73-83, February.
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    Cited by:

    1. Erdogdu, Erkan, 2011. "The impact of power market reforms on electricity price-cost margins and cross-subsidy levels: A cross country panel data analysis," Energy Policy, Elsevier, vol. 39(3), pages 1080-1092, March.
    2. Erdogdu, Erkan, 2013. "Essays on Electricity Market Reforms: A Cross-Country Applied Approach," MPRA Paper 47139, University Library of Munich, Germany.

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