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Reserve price: Lessons learned from Brazilian electricity procurement auctions


  • Rego, Erik Eduardo


Auctions have been used in several formats in the electric energy industry. In general, regulators may be uncomfortable initiating a reverse auction at a higher-than-expected final price, fearing that participants may sell their energy at an excess profitability. Nevertheless, evidence from electricity procurement auctions conducted in Brazil supports the findings that these types of auctions have the opposite effect. By attracting a larger number of agents, these auctions can trigger stronger competition and lead to lower settlement pricing. Accordingly, the Brazilian cases examined in this article present significant evidence to support this directional theory. In fact, there are some cases of electricity procurement auctions that show that inadequate auction reserve pricing leads to inefficient outcomes and may also cause the auction to fail. On the other hand, auctions with adequate price caps have led to lower final clearing prices, thus contributing to reasonable final energy pricing.

Suggested Citation

  • Rego, Erik Eduardo, 2013. "Reserve price: Lessons learned from Brazilian electricity procurement auctions," Energy Policy, Elsevier, vol. 60(C), pages 217-223.
  • Handle: RePEc:eee:enepol:v:60:y:2013:i:c:p:217-223
    DOI: 10.1016/j.enpol.2013.05.007

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    References listed on IDEAS

    1. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-194, March.
    2. Paul Klemperer, 2002. "What Really Matters in Auction Design," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 169-189, Winter.
    3. Luiz T. A. Maurer & Luiz A. Barroso, 2011. "Electricity Auctions : An Overview of Efficient Practices," World Bank Publications, The World Bank, number 2346.
    4. Grobman, Jeffrey H. & Carey, Janis M., 2001. "Price caps and investment: long-run effects in the electric generation industry," Energy Policy, Elsevier, vol. 29(7), pages 545-552, June.
    5. Larsen, Erik R. & Dyner, Isaac & Bedoya V., Leonardo & Franco, Carlos Jaime, 2004. "Lessons from deregulation in Colombia: successes, failures and the way ahead," Energy Policy, Elsevier, vol. 32(15), pages 1767-1780, October.
    6. Lloyd, Debra & Woo, C. K. & Borden, Michael & Warrington, Ron & Baskette, Carmen, 2004. "Competitive Procurement and Internet-Based Auction: Electricity Capacity Option," The Electricity Journal, Elsevier, vol. 17(4), pages 74-78, May.
    7. Peter Cramton & Steven Stoft, 2007. "Colombia Firm Energy Market," Papers of Peter Cramton 07cfem, University of Maryland, Department of Economics - Peter Cramton, revised 2007.
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    Cited by:

    1. repec:eee:enepol:v:110:y:2017:i:c:p:662-674 is not listed on IDEAS
    2. Ferreira, Jacson Hudson Inácio & Camacho, José Roberto & Malagoli, Juliana Almansa & Júnior, Sebastião Camargo Guimarães, 2016. "Assessment of the potential of small hydropower development in Brazil," Renewable and Sustainable Energy Reviews, Elsevier, vol. 56(C), pages 380-387.
    3. Cassetta, Ernesto & Meleo, Linda & Monarca, Umberto & Nava, Consuelo R., 2017. "Is the answer blowin' in the wind (auctions)? An assessment of Italian auction procedures to promote onshore wind energy," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201709, University of Turin.
    4. Poudineh, Rahmatallah & Jamasb, Tooraj, 2014. "Distributed generation, storage, demand response and energy efficiency as alternatives to grid capacity enhancement," Energy Policy, Elsevier, vol. 67(C), pages 222-231.
    5. repec:eee:rensus:v:91:y:2018:i:c:p:219-228 is not listed on IDEAS
    6. Paulo Henrique de Mello Santana, 2015. "Cost-effectiveness as Energy Policy Mechanisms: The Paradox of Technology-neutral and Technology-specific Policies in the Short and Long Term," Working Papers Working Paper 2015-02, Regional Research Institute, West Virginia University.
    7. de Mello Santana, Paulo Henrique, 2016. "Cost-effectiveness as energy policy mechanisms: The paradox of technology-neutral and technology-specific policies in the short and long term," Renewable and Sustainable Energy Reviews, Elsevier, vol. 58(C), pages 1216-1222.


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